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Sabrient Multi-cap Insider/Analyst Quant-Weighted Index
The Sabrient Multi-cap Insider/Analyst Quant-Weighted Index (SBRQAM) is designed to help markets incorporate the dynamics of both corporate insiders’ behavior and analysts’ earnings revisions into stock valuations.
What distinguishes this index from other "insider sentiment" indices is quantitative weighting. This process gives added weight to a “defensive” Sabrient score that rewards stocks that perform well in down markets as well as up markets, have strong free cash flow, and consistent dividend yield. It is comprised of 100 top-ranked stocks drawn from a universe of eligible securities which are the 1500 listed stocks with the largest market capitalization.
Launched in December 2011, this index is licensed to Direxion Funds and tracked by the Direxion All Cap Insider Sentiment Shares (KNOW).
(This index is available for sector-specific and cap-specific licensing.)
This index reflects positive sentiment among corporate officers, directors, large institutional shareholders, and the Wall Street research analysts who follow the company—those "insiders" most knowledgeable about a company’s financial statements and business prospects.
Quantitative factors derived from raw data feeds are used in a fixed algorithm to select stocks for inclusion in the Sabrient Multi-cap Insider/Analyst Quant-Weighted Index.
The process, simplified, is as follows:
Starting with the 1500 stocks with the largest market capitalization, we eliminate stocks of companies with very aggressive accounting practices, as identified by Sabrient’s proprietary forensic accounting methodology.
Four quantitative factors are used for the first cut to winnow the stocks from the 1500 stocks with the largest market capitalization. At least one of these four factors must be positive for a stock to make the first cut:
- Number of insiders making open-market purchases
- Percent increase in the holdings of the purchaser
- Number of positive analyst revisions
- Percent increase in analyst expectations
The top 100 stocks from the second cut are used to populate the index.
A “defensive sentiment” overlay is used to rank the final 100 stocks. This overlay rewards stocks that historically have performed well in weak markets and have strong free cash flow yield and strong dividend yield. The top 50 stocks are then weighted exponentially so that the top 50 represent a range of 2.6% (for the highest ranked stock) to 0.96% for the 50th ranked stock, and each of the bottom 50 stocks is given a flat-weighting of 0.35% in the index.
There are no sector concentration limits on the selected stocks. The index is re-balanced monthly.
For more information on the methodology and back-tests, please see this white paper.